As baby boomers increasingly dominate the homebuying market, real estate professionals have a prime opportunity to grow their business within this thriving demographic.
In fact, baby boomers now make up 39% of all homebuyers, according to the National Association of Realtors®. With substantial home equity at their disposal, these buyers are well-positioned to fund their next home purchase.
Home Purchase Trends Among Retirees
- Moving Closer to Loved Ones:Â Retirement often sparks a desire to live nearer to family and friends.
- Rightsizing:Â Seniors are downsizing to smaller, more manageable homes.
- Modern Living:Â Many prefer newer homes with updated features and low maintenance needs.
- Aging in Place:Â Single-story homes designed for comfort and safety are ideal for retirees.
- Chasing the Sun:Â Warmer climates continue to attract retirees.
- Cost-Conscious Moves:Â Retirees seek areas with lower taxes and living expenses to protect their wealth.
The Challenges Facing Senior Homebuyers
While their current homes may have been perfect during their working years, many retirees find them too large or outdated. However, moving isn’t always easy. Low-rate mortgages from recent years have kept payments manageable, making today’s higher rates seem less appealing. Concerns about new mortgage payments, depleting savings or being priced out of the market can hold retirees back. Additional worries include affording the move while juggling other expenses and credit concerns.
The Solution: Home Equity Conversion Mortgage for Purchase (H4P) Loans
Offered by Federal Housing Administration (FHA)-approved lenders like Fairway, H4P loans blend the benefits of cash purchases and traditional financing, making it easier for seniors to buy the home they want without draining their savings.
What Is an H4P Loan?
H4P loans are a unique type of reverse mortgage insured by the FHA and explicitly designed for homebuyers 62 and over. With an H4P loan, seniors can finance a new home without monthly principal and interest payments (property charges like taxes and insurance still apply), giving them the financial freedom to allocate funds elsewhere.
- No Monthly Mortgage Payments:Â Borrowers can defer repayment of the loan balance while living in the home and paying property expenses like taxes and insurance.
- Down Payment: Seniors contribute 45%-70%* of the home’s purchase price, with the rest covered by the H4P loan.
- Flexible Payments: Borrowers can make no monthly payments or choose to pay down the loan balance voluntarily. Interest and Mortgage Insurance Premiums (MIPs) accrue over time.
- Non-Recourse Protection: If the loan balance exceeds the home’s value at maturity, borrowers or their heirs won’t owe more than the home’s worth if the home is sold to satisfy the loan.** Heirs can also keep the home by paying the lesser of the loan balance or 95% of the home’s appraised value.
Watch this customer testimonial and see how Bobby and Gloria used an H4P loan to boost their purchasing power and secure their dream home while preserving their retirement savings.
- Set Yourself Apart:Â Be the first agent in your local market to educate consumers about this unique loan product.
- Increase Buying Power:Â Help your buyers afford higher-priced homes with the amenities they want, leading to higher average sales prices and happier clients.
- Capture New Customers: Attract seniors who don’t want a monthly mortgage payment but are hesitant to use most of their assets to buy a new home in cash.
- Fewer Underwriting Denials:Â Credit and income requirements for H4P loans are typically less restrictive than a traditional mortgage.
Example Scenario: Sue’s Choices
Note: Story for illustration purposes only. The persons depicted are fictional.
Meet Sue, a 73-year-old homeowner with $500,000 in proceeds from selling her current home. She wants to buy a $600,000 home and has three options:
Pay All Cash
Sue could use her home sale proceeds and dip into her savings, but this would tie up her liquid assets in real estate and reduce financial flexibility.
Traditional 30-Year Mortgage
Sue could finance $480,000, but her monthly payment of $3,142 (at a 6.83% fixed rate) might strain her retirement budget. Over the life of the loan, she could end up paying more than $1.1 million in principal and interest, not including her down payment and closing costs.
H4P Loan
With a $357,000* down payment, Sue avoids monthly mortgage payments (aside from property charges like taxes and insurance), keeping more of her proceeds liquid to fund her retirement lifestyle. It’s a lot like paying cash but with the added benefit of having more liquidity available for future needs.
Why Work With Fairway?
Don’t miss the opportunity to help seniors achieve their dream homes while growing your real estate business. Connect with Fairway today to learn more about H4P loans and how they can benefit you and your clients.
Let’s Start a Conversation!
If you’d like to learn more about reverse mortgage loans and how one may help with your unique needs, those of a loved one or someone you advise, connect with Fairway today to learn more.
*The required down payment on your client’s new home is determined on a number of factors, including their age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and the lesser of the home’s appraised value or purchase price.
**There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
